The Total Economic Impact™ Of A Virtual Cloud …...2018/05/23 · The Virtual Cloud Network...

A Forrester Total Economic Impact™

Study Commissioned By VMware

May 2018

The Total Economic Impact™ Of A Virtual Cloud Network

Cost Savings And Business Benefits Enabled By VMware NSX Technology

Table Of Contents Executive Summary 1

Key Findings 2

TEI Framework And Methodology 4

The Virtual Cloud Network Customer Journey 5

Interviewed Organizations 5

Key Challenges 5

Key Results 6

Composite Organization 6

Analysis Of Benefits 8

Capital Expenditure Cost Avoidance With NSX Data Center 8

Operational Cost Avoidance For Decommissioned And Avoided Hardware 10

Systems Admin Time Savings From IT And Security Automation 12

End User Productivity Improvements 13

Reduced WAN Connectivity Costs 14

Reclaimed Losses From WAN Downtime 15

WAN Management Time Savings 16

Unquantified Benefits 18

Flexibility 18

Analysis Of Costs 20

License And Support Costs For NSX Data Center 20

Deployment And Training For NSX Data Center 21

Cost Of Deployment Of The SD-WAN Environment 22

Cost Of SD-WAN Software And Hardware 23

Financial Summary 24

VMware NSX: Delivering The Virtual Cloud Network 25

Appendix A: Total Economic Impact 26

Endnotes 27

Project Director:

Joe Branca

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1 | The Total Economic Impact™ Of A Virtual Cloud Network

Executive Summary

As organizations prioritize digital transformation initiatives, many are

finding that legacy network architectures are holding them back. To

support new business models, cloud adoption, and an explosion in

connected devices, modern networks must support interoperability across

data centers, multiple clouds, branch locations, and edge devices.

Applications now run at every point on this spectrum, and they are critical

to businesses’ ability to win in hyper-competitive marketplaces. Yet, even

as business success has become more dependent on this new

architecture, and the amount of data flowing across connections has

increased, many organizations still lack a unified approach to

management, automation, and security.

With a Virtual Cloud Network delivered on NSX technology, VMware aims

to address these issues, allowing organizations to leverage a software

abstraction to connect, operate, and secure end-to-end architectures that

support applications wherever they may reside. The NSX family of

products includes the following:

› NSX Data Center: Network virtualization for the data center.

› NSX Cloud: Networking and security for cloud-native applications.

› NSX SD-WAN by VeloCloud: Cloud-based, software-defined WAN

management.

To better understand the benefits, costs, and risks associated with an

investment in a Virtual Cloud Network, Forrester interviewed five

customers using VMware NSX Data Center for network virtualization as

well as three customers using VMware NSX SD-WAN by VeloCloud.

Prior to deploying NSX Data Center, IT organizations at the interviewed

organizations struggled to keep up with rapidly evolving business needs.

An investment in NSX Data Center gave them the tools to meet developer

demands while helping to save on capital expenditures, reduce operational

costs, and ensure network performance, all while maintaining security of

sensitive data flows. Previously, NSX SD-WAN by VeloCloud (NSX SD-

WAN) customers faced high connectivity costs, significant amounts of

downtime, and complex WAN configurations that required too much of

their network engineers’ time. With the investment in NSX SD-WAN, they

were able to utilize commodity broadband at lower costs, ensure continuity

of service at branch locations, and simplify the management of the WAN.

“[NSX SD-WAN by] VeloCloud is a key infrastructural capability that allows

organizations to prioritize at the application level,” said the chief

information officer of a regional supermarket chain. “There’s a level of

guarantee on the availability of uptime and performance on the WAN.”

The interviewed organizations also considered the NSX family of

technologies instrumental to the “cloud journey” that they have embarked

on, as one senior network engineer termed it.

Based on the customer interviews, Forrester created a composite

organization to illustrate the benefits and costs associated with an

investment in a Virtual Cloud Network. The analysis revealed that a Virtual

Cloud Network has the following three-year financial impact: $13.2 million

in benefits versus costs of $6.4 million, resulting in a net present value

(NPV) of $6.8 million and an ROI of 106%.

Benefits Highlights*

Capital expenditure avoidance with NSX Data Center:

$8,074,278

Operational cost avoidance for decommissioned and avoided hardware infrastructure:

$1,047,797

Reduced WAN connectivity costs:

$859,456

*Based on a composite organization and over a three-year period.


Key Findings

Quantified benefits. The composite organization experienced the

following risk-adjusted present value (PV) benefits totaling $13,224,972

over three years:

› Capital expenditure avoidance for server and network hardware

with NSX Data Center totaling $8,074,278. By choosing a virtualization

strategy, the composite organization forwent an initial capital expenditure

of $4.9 million to secure east-west traffic in its data center. Additionally, it

avoided purchasing — at a cost of $32,000 each — 19 host servers in

Year 1, 21 in Year 2, and 23 in Year 3. In each year, NSX Data Center

also allowed the organization to avoid the purchase of switches, load

balancers, and additional security appliances to accommodate growth.

› Operational cost avoidance for decommissioned and avoided

hardware totaling $1,047,797. Operational costs, including

maintenance, patching, and support, are calculated as a percentage of

server costs. Owing to better utilization, the composite organization was

able to retire 37% of its existing servers, which allowed it to avoid the

costs associated with upkeep.

› System administrator time savings from IT and security automation

totaling $1,283,724. By implementing NSX Data Center, the composite

organization improved workflows for system administrators, saving over

6,000 hours of administrator time each year over the three-year period

covered in this analysis.

› End user productivity improvements totaling $1,572,469.

Periods of severe underperformance and network unavailability

would have cost the composite organization 11,000 hours (at an

average cost of $42 per hour) of end user productivity over a three-

year period. By enabling administrators to efficiently provision

resources, the organization avoided these productivity losses.

› Reduced WAN connectivity costs totaling $859,456. The switch

to an SD-WAN architecture allowed the composite organization to

trade expensive T1 links with a 3G failover for commodity

broadband links with a 4G failover, saving $800 per location, per

month.

› Reclaimed losses from WAN downtime totaling $342,440. Prior

to deploying NSX SD-WAN, the composite organization

experienced 30 days of downtime across 40 branch locations. Each

day cost $8,000 in lost revenue, on which the company earned a

20% gross margin, as well as $1,500 in lost employee productivity

and $2,000 in internal effort to restore the network.

› Time savings in managing the WAN totaling $44,808. The

previous WAN environment required the attention of two IT

managers and three network administrators; each committed 10%

of his or her time to managing the network. With NSX SD-WAN,

managing the WAN required 35% less effort than prior to the

deployment, creating significant savings.

Unquantified benefits. The interviewed organizations experienced the

following benefits, which are not quantified for this study:

ROI 106%

Benefits PV $13.2 million

NPV $6.8 million

Payback <6 months


› Most security breaches can be attributed to internal sources;

securing east-west (internal) data flows can limit the impact of an

incident. In 2017, the average cost of a security breach was $3.62

million, and organizations faced, on average, a 28% chance of

falling victim to a recurring material data breach, according to the

Ponemon Institute.1 The reduction in risk exposure that

accompanies any major improvement in internal security has not

been factored into the ROI.

Costs. The composite organization experienced the following risk-

adjusted PV costs:

› License and support costs for NSX Data Center of $5,819,461. Over

three years, the composite organization incurred costs of $5.8 million for

licensing and support. Licenses are only purchased for the hosts that will

serve the virtual network and prices are tied to the number of CPU

sockets on a system. Ongoing support is offered at a percentage of the

total license costs.

› Development and training costs for NSX Data Center of $303,177.

For professional services as well as training, which accelerated

implementation and production-readiness, the composite organization

paid costs of $303,177.

› Deployment and management of the NSX SD-WAN solution costs of

$78,750. The composite organization contracted with a third-party

systems integrator to deploy NSX SD-WAN at each of its branch

locations. The modest costs speak to the ease with which NSX SD-WAN

was deployed, but owe also from the geographic density of the branch

locations.

› Monthly costs for NSX SD-WAN appliance rental and access to

cloud management portal totaling $194,273. NSX SD-WAN

customers incur monthly charges for the rental of SD-WAN appliances

and gateways as well as access to the cloud management platform.

Forrester’s interviews with eight VMware customers using the NSX family

of products and subsequent financial analysis found that an organization

based on these interviewed organizations experienced benefits of

$13,224,972 over three years versus costs of $6,430,755, adding up to a

net present value (NPV) of $6,794,217 and an ROI of 106%.


TEI Framework And Methodology

From the information provided in the interviews, Forrester has constructed

a Total Economic Impact™ (TEI) framework for those organizations

considering implementing a Virtual Cloud Network.

The objective of the framework is to identify the cost, benefit, flexibility, and

risk factors that affect the investment decision. Forrester took a multistep

approach to evaluate the impact that a Virtual Cloud Network can have on

an organization:

DUE DILIGENCE Interviewed VMware stakeholders and Forrester analysts to gather data relative to a Virtual Cloud Network deployment.

CUSTOMER INTERVIEWS Interviewed eight organizations using a Virtual Cloud Network to obtain data with respect to costs, benefits, and risks.

COMPOSITE ORGANIZATION Designed a composite organization based on characteristics of the interviewed organizations.

FINANCIAL MODEL FRAMEWORK Constructed a financial model representative of the interviews using the TEI methodology and risk-adjusted the financial model based on issues and concerns of the interviewed organizations.

CASE STUDY Employed four fundamental elements of TEI in modeling a Virtual Cloud Network’s impact: benefits, costs, flexibility, and risks. Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester’s TEI methodology serves to provide a complete picture of the total economic impact of purchase decisions. Please see Appendix A for additional information on the TEI methodology.

The TEI methodology

helps companies

demonstrate, justify,

and realize the

tangible value of IT

initiatives to both

senior management

and other key

business

stakeholders.

DISCLOSURES

Readers should be aware of the following:

This study is commissioned by VMware and delivered by Forrester Consulting.

It is not meant to be used as a competitive analysis.

Forrester makes no assumptions as to the potential ROI that other

organizations will receive. Forrester strongly advises that readers use their own

estimates within the framework provided in the report to determine the

appropriateness of an investment in a Virtual Cloud Network.

VMware reviewed and provided feedback to Forrester, but Forrester maintains

editorial control over the study and its findings and does not accept changes to

the study that contradict Forrester’s findings or obscure the meaning of the

study.

VMware provided the customer names for the interviews but did not participate

in the interviews.


A Virtual Cloud Network Customer Journey

BEFORE AND AFTER A VIRTUAL CLOUD NETWORK INVESTMENT

Interviewed Organizations

For this study, Forrester conducted eight interviews with customers using

a Virtual Cloud Network and the associated NSX family of products. The

interviewed customers include the following:

Key Challenges

The following key drivers prompted customer organizations to seek out

new approaches to network management and security:

› Risk of a large-scale breach. Forrester's research indicates that

internal actors are the most common source of a data breach, and

without a firm policy to regulate east-west traffic in the data center,

organizations left themselves exposed to a large-scale incident.2

› Streamlining the development process. IT operations teams wanted

to get out of developers' way and leave them to do what they do best.

As one customer put it, the goal was "to have developers build, deploy,

and move their environments to different tiers or categories of

development with as little intervention as possible."

› High costs to support the WAN network. Customers relied on

expensive T1 and MPLS links to connect branch locations, and they

were looking for easy opportunities for cost savings. However, they

were also seeking an easier solution to manage, as the previous WAN

management tools were cumbersome and inefficient, according to

interviewees.

ORGANIZATION INTERVIEWEE SCALE NSX PRODUCT(S)

Major US university Information technologist 30,000 end users NSX Data Center

Business services firm for Fortune 500 clients

Sr. manager, cloud infrastructure

$2 billion annual revenue NSX Data Center

US graduate-level educational institute

Network architect 4,000 end users NSX Data Center

US utility company Sr. cloud administrator $18 billion annual revenue

NSX Data Center

Global information services provider

Sr. network engineer $4 billion annual revenue NSX Data Center

Global mining operations company

Global network operations manager

$16 billion annual revenue

NSX SD-WAN by VeloCloud

Holding company with diverse portfolio businesses

Chief technology officer $100 million annual revenue

NSX SD-WAN by VeloCloud

Regional supermarket chain Chief information officer $1 billion annual revenue NSX SD-WAN by VeloCloud

“When the product line was

being built out, normally that

would have been anywhere

from a three- to six-month

process to allocate all the

storage, all the VMs, and all

those different components,

and they were able to go from

concept to deployment of the

new part of the application in

that private cloud area in

about two weeks."

-Senior network engineer, global

information services provider


Business disruption at branch locations. With previous WAN

configurations, customers experienced frequent periods of downtime,

which took business operations to a halt. Customers observed direct

losses in revenue and employee productivity but struggled to quantify

the impact this had on their brands. What's more, the effort it took to

bring networks back online added to costs.

Key Results

The interviewees described the following key results from the investment

in a Virtual Cloud Network:

› Streamlining the development process. In legacy environments,

provisioning infrastructure could take weeks, which impacted

developer timelines. With NSX Data Center, what was once a three- to

six-month process is now one that takes weeks. "We were able to go

from concept to deployment of [a] new part of the application in the

private cloud in about two weeks," said one interviewee.

› A limited attack surface. NSX Data Center's virtual firewall

capabilities allowed customers to protect internal data flows,

essentially creating micro-segmentation around each workload. The

ability to assign security policy at a granular level (i.e., to individual

VMs or containers) offered peace of mind at a time when: (1.) data

handling is scrutinized by regulatory bodies and (2.) large-scale

breaches can become front-page news.

› Simplified WAN management. According to interviewees, NSX SD-

WAN's cloud tools create significant time savings for administrators.

The chief technology officer of a holding company that manages

diverse businesses reported that: "The cloud tools really save a lot of

time on the management side of keeping the network running. It

requires very little time and effort."

› Near-zero downtime at branch locations. Customers using NSX SD-

WAN reported that they experience near-zero downtime at branch

locations. When minor disruptions do occur, the response is

automated, and network administrators rarely intervene. But the

biggest benefit is to the business, which is able to ensure continuity of

its operations.

Composite Organization

Based on the interviews, Forrester constructed a TEI framework, a

composite company, and an associated ROI analysis that illustrates the

areas financially affected. The composite organization is representative

of the eight companies that Forrester interviewed and is used to present

the aggregate financial analysis in the next section. The composite

organization that Forrester synthesized from the customer interviews has

the following characteristics:

Description of composite. The composite organization is a US-based

retail holding company with multiple brands under management and

approximately $2 billion in total annual revenue. Many brands have both

an online and brick-and-mortar presence. Owing to the nature of its

business, the company manages significant amounts of data subject to

the payment card industry (PCI) data security standard. In its most

recent acquisition, the company purchased a regional chain of retail

stores with more than 40 locations and combined revenue of more than

$100 million.

Key assumptions

● $2 billion in total

annual revenue

● 3,000 VMs running on

300 hosts

● 40 recently acquired

branch locations

“Because of the built-in NSX

[Data Center] firewall and load

balancing capabilities, we can

really rethink our approach to

network design and journey

into some areas that would not

have been possible before.”

-Senior network engineer, global

information services provider

“VeloCloud is a key

infrastructural capability that

allows organizations to

prioritize at the application

level. There’s a level of

guarantee on the availability of

uptime and performance on

the WAN.”

-Chief information officer, regional

supermarket chain


Deployment characteristics. The following description aims to provide

context for the deployment of a Virtual Cloud Network with key

components of the NSX family of products:

› Virtual network. Prior to the deployment of NSX Data Center, the

organization relied on 3,000 virtual machines, running across 300

hosts, to support mission-critical applications. Without a centralized

approach to network management, it struggled to keep up with the

demands of the business. In the absence of automation, it took time

and effort to provision secure, segmented networks. Although it used

software and hardware protection at the perimeter, its internal security

was lacking.

› WAN network. Upon the acquisition of the chain of markets, the

organization sought to reduce costs associated with managing the

WAN across the branch locations. It also wanted to improve uptime

and service quality. Prior to deploying NSX SD-WAN, each branch was

equipped with two T1 links along with a 3G failover. Despite the high

costs of these links, downtime exceeded more than 0.75 operating

days at each location.

› Cloud. Though its transition to the public cloud is still in early stages,

the composite organization does have a presence on major cloud

computing platforms, to which it offers developers access alongside

the private cloud resources. Additionally, some developers at the

organization work with containers, but the organization is seeking a

better strategy for managing the security and networking aspects of the

container environment prior to offering these capabilities more broadly.

It is exploring new capabilities offered by the NSX family of products to

meet its evolving needs.


The table above shows the total of all benefits across the areas listed below, as well as present values (PVs) discounted at 10%. Over three years, the composite organization expects risk-adjusted total benefits to be a PV of more than $13.2 million.

Analysis Of Benefits

QUANTIFIED BENEFIT DATA AS APPLIED TO THE COMPOSITE

Capital Expenditure Cost Avoidance For Server And

Network Hardware With NSX Data Center

In legacy environments, network resources were significantly

underutilized, with an average compute utilization of approximately 15%.

With NSX Data Center, customer organizations were able to improve

utilization, which in turn allowed them to retire some legacy resources. It

also helped customer organizations avoid capital expenditures for

multiple categories of networking hardware:

› Owing to NSX Data Center's built-in routing, switching, and load-

balancing capabilities, customers were able to avoid purchasing

infrastructure components such as switches and load balancers.

› By choosing a microsegmentation strategy to secure internal traffic,

customers were also able to avoid making significant investments in

security appliances.

Total Benefits

REF. BENEFIT INITIAL YEAR 1 YEAR 2 YEAR 3 TOTAL PRESENT VALUE

Atr

Capital expenditure cost avoidance with NSX Data Center (brownfield deployment)

$4,374,000 $1,413,000 $1,517,400 $1,546,200 $8,850,600 $8,074,278

Btr

Operational cost avoidance for decommissioned and avoided hardware

$802,180 $95,486 $98,879 $102,611 $1,099,157 $1,047,797

Ctr Systems admin time savings from IT and security automation

$0 $470,703 $517,773 $569,535 $1,558,012 $1,283,724

Dtr End user productivity improvements

$393,120 $432,432 $475,675 $523,228 $1,824,455 $1,572,469

Etr Reduced WAN connectivity costs

$0 $345,600 $345,600 $345,600 $1,036,800 $859,456

Ftr Reclaimed losses from WAN downtime

$0 $137,700 $137,700 $137,700 $413,100 $342,440

Gtr WAN management time savings

$0 $18,018 $18,018 $18,018 $54,054 $44,808

Total benefits (risk-adjusted)

$5,569,300 $2,912,940 $3,111,046 $3,242,892 $14,836,177 $13,224,972


Impact risk is the risk that the business or technology needs of the organization may not be met by the investment, resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for benefit estimates.

For the composite organization, Forrester assumes the following:

› The composite organization started out with a base of 300 host

servers.

› Without NSX Data Center, the number of servers required to meet end

user demand for network resources would grow by 10% each year;

with NSX Data Center, the organization will require 37% fewer new

servers.

› With NSX Data Center, the organization can utilize commodity

servers, which on a per unit basis cost an average of $12,000 less.

› By choosing a virtual firewall strategy, the organization avoided a

significant initial purchase of security appliances and avoided further

investment in security appliances as demand for network resources

grew.

The following risks may affect this benefit category:

› An organization’s resource utilization rate prior to the deployment of

NSX Data Center.

› The maturity of an organization’s approach to internal security prior to

the deployment of NSX Data Center.

An organization’s resource utilization rate prior to the deployment of NSX

Data Center may impact this benefit category. To account for this risk,

Forrester applied a 10% risk adjustment to this benefit category, yielding

a three-year, risk-adjusted total PV of $8,074,278.

With NSX Data Center,

the composite

organization required 37%

fewer new servers. Those

it did purchase were

commodity servers, and

they were $12,000

cheaper, on average.


Operational cost avoidance:

8% of total benefits

three-year benefit PV

$1.0 million

Operational Cost Avoidance For Decommissioned

And Avoided Hardware

By paring down infrastructure and using it more effectively, NSX Data

Center customers also avoided significant costs for infrastructure

maintenance.


› The cost of maintenance, patching, and support for existing host

servers is equal to 10% of the initial purchase price.

› When it began using NSX Data Center, the composite organization

decommissioned 37% of its 300 existing servers, which had a

purchase of $32,000 each or $3,584,000 in total.

› In years 1, 2, and 3, it decommissioned 11, 12, and 14 servers,

respectively.

› The cost of maintenance, patching, and upkeep for the security

appliances that the composite organization avoided purchasing by

pursuing a virtual firewall strategy is equal to 10% of the security

appliance initial purchase price.

Capital Expenditure Cost Avoidance With NSX Data Center: Calculation Table

REF. METRIC CALC. INITIAL YEAR 1 YEAR 2 YEAR 3

A1 Total existing host servers with previous solution

300 330 363 399

A2 Host server growth with previous solution

Baseline: 300 30 33 36

A3 Host server growth required with NSX Data Center

19 21 23

A4 Delta in new servers required A2-A3 11 12 13

A5 Cost per host server $20,000 $20,000 $20,000

A6 Delta in server unit cost with existing solution versus with commodity servers on NSX Data Center

$12,000 $12,000 $12,000

A7 Host server savings with NSX Data Center

A4*(A5+A6) $352,000 $384,000 $416,000

A8 Infrastructure purchase cost avoidance - switches, load balancers

Existing research

$570,000 $654,000 $654,000

A9 Security appliance purchase avoidance for east-west traffic

Existing research

$4,860,000 $648,000 $648,000 $648,000

At Capital expenditure cost avoidance with NSX Data Center (brownfield deployment)

A7+A8+A9 $4,860,000 $1,570,000 $1,686,000 $1,718,000

Risk adjustment ↓10%

Atr Capital expenditure cost avoidance with NSX Data Center (brownfield deployment) (risk-adjusted)

$4,374,000 $1,413,000 $1,517,400 $1,546,200


› By choosing NSX Data Center, the composite organization initially

avoided the purchase of security appliances worth $4,860,000; in each

subsequent year, it avoided the purchase of security appliances worth

$648,000.

The following risk factors may affect the benefits realized by other

organizations that deploy NSX Data Center:

› The efficiency with which organizations carry out maintenance,

patching, and security prior to the NSX Data Center deployment.

› The speed with which an organization is able to decommission servers

carried over from the pre-NSX Data Center environment.

To account for these risks, Forrester applied a 5% risk adjustment,

yielding a three-year, risk-adjusted total PV of $1,047,797.

Operational Cost Avoidance For Decommissioned And Avoided Hardware: Calculation Table


B1 Servers decommissionable from previous solution

112 11 12 14

B2 Maintenance, patching, and support of existing hosts

10% of server cost

$358,400 $35,712 $39,283 $43,212

B3 Maintenance, patching, upkeep of infrastructure and security appliances w/o NSX Data Center

10% of infrastructure cost

$486,000 $64,800 $64,800 $64,800

Bt Operational cost avoidance for decommissioned and avoided hardware

B2+B3 $844,400 $100,512 $104,083 $108,012


Btr Operational cost avoidance for decommissioned and avoided hardware (risk-adjusted)

$802,180 $95,486 $98,879 $102,611


Systems admin time savings from IT and security automation:



$1.3 million

Systems Admin Time Savings From IT And Security

Automation

NSX Data Center saved administrators time by making workload

provisioning, network management, and security assignment processes

more efficient. One interviewee said, "We would surely need a lot more

people to manage the network if not for NSX [Data Center]."


› In Year 1, system administrators saved a total of 6,117 hours on tasks

that include workload provisioning, network management, and security

policy administration.

› Time savings increased by 10% in each subsequent year.

› The organization realized this benefit by: 1) being able to avoid hiring

additional system administrators at a fully loaded hourly rate of $81

and 2) reallocating existing network administrators to other tasks.

The maturity of an organization’s existing network automation and

security practices may impact this benefit category. To account for this

risk factor, Forrester applied a 5% risk adjustment, yielding a three-year,

risk-adjusted total PV of $1,283,724.

Systems Admin Time Savings From IT And Security Automation: Calculation Table


C1 Workload provisioning automation savings in hours

2,100 2,310 2,541

C2 Network management automation savings in hours

2,520 2,772 3,049

C3 Security posturing/policy automation savings in hours (rounded)

1,497 1,647 1,811

C4 Total hours of administrator time savings

(C1+C2+C3) 6,117 6,729 7,401

C5 Hourly cost of systems admin fully loaded

$81 $81 $81

Ct Systems admin time savings from IT and security automation

(C1+C2+C3)*C5

$0 $495,477 $545,025 $599,511


Ctr Systems admin time savings from IT and security automation (risk-adjusted)

$0 $470,703 $517,773 $569,535


End user productivity improvements:



$1.6 million

End User Productivity Improvements

Prior to an investment in NSX Data Center, interviewees' IT

organizations frequently provisioned resources that underperformed,

owing to the inexact, manual process with which they were allocated.

Rectifying performance issues took time, forcing end users to work with

suboptimal resources and hampering productivity. NSX Data Center

enabled administrators to quickly provision resources adequate to

support end user workflows.


› Initially, the equivalent of 3,200 VMs was required to meet daily end

user demand.

› Each year, end user demand for VMs increased by 10%.

› Over the course of the year (260 working days), 5% of these VMs

failed or experienced degraded performance.

› Each period of failure or degraded performance lasted 15 minutes,

during which end user productivity was hampered.

The following are potential risks that may affect this benefit category:

› The accuracy with which network administrators can provision

resources adequate for end users to perform their jobs.

› The frequency with which end users experience performance

degradation and extent to which it impacts their workflows.


yielding a three-year, risk-adjusted total PV of $1,572,469.

End User Productivity Improvements: Calculation Table


D1 Active VM user usage across the enterprise, per year

4,000 VMs daily at 80% utilization

832,000 915,200 1,006,720 1,107,392

D2 Frequency of degradation occurrences with prior solution

5% of VM degrade/fail

41,600 45,760 50,336 55,370

D3 Duration of average performance degradation leading to lower end user productivity (hours)

1/4 hour per degrade/fail

10,400 11,440 12,584 13,842

D4 Average hourly wage of end user fully loaded

$42/hour $42 $42 $42 $42

Dt End user productivity improvements D3*D4 $436,800 $480,480 $528,528 $581,364


Dtr End user productivity improvements (risk-adjusted)

$393,120 $432,432 $475,675 $523,228


Reduced WAN connectivity costs: 6% of total benefits


$859,456

Reduced WAN Connectivity Costs

By switching to an SD-WAN architecture with NSX SD-WAN, the

customers were able to reduce the costs associated with connectivity

while also improving the quality of service to branch locations.

Previously, they relied on expensive T1 and MPLS connections. With

NSX SD-WAN, they were able to switch to commodity broadband links,

which are available at a much lower cost. The chief information officer of

a regional chain of fresh food markets estimated cost savings of more

than $130,000 for connectivity, while the global network operations

manager for a mining company estimated cost savings at just over $1

million.


› The organization replaced its existing T1 and 3G failover connections

with commodity broadband and 4G failover connections at each of its

40 locations.

› For each location, the organization realized $800 in monthly cost

savings for connectivity.


organizations that deploy NSX SD-WAN:

› The cost of an organization’s existing connectivity options.

› The cost of broadband connectivity at branch locations.


yielding a three-year, risk-adjusted total PV of $859,456.

Reduced WAN Connectivity Costs: Calculation Table


E1 Per location connectivity costs for T1 connections with 3G failover

Monthly $1,100 $1,100 $1,100

E2 Per location connectivity costs for broadband with 4G failover

Monthly $300 $300 $300

E3 Branch locations 40 40 40

Et Reduced WAN connectivity costs (E1-E2)*E3*12 $0 $384,000 $384,000 $384,000


Etr Reduced WAN connectivity costs (risk-adjusted)

$0 $345,600 $345,600 $345,600


Reclaimed Losses From WAN Downtime

Prior to deploying NSX SD-WAN, the customers Forrester spoke with

experienced significant amounts of downtime on the WAN. Weather, for

example, frequently put T1 connections temporarily out of commission,

according to one customer. In some cases, the 3G connection provided

an emergency fallback to keep applications up and running, but network

administrators had to scramble to set priority levels for network traffic.

Despite these efforts, it was typical for each organization that Forrester

interviewed to experience downtime in excess of one day for each

branch location. When downtime occurred, normal business operations

(such as point-of-sale transactions) ground to a halt. With NSX SD-WAN,

the customers reduced downtime to near zero.


› Prior to the NSX SD-WAN deployment, the organization experienced

0.75 operational days of annual downtime at each of its 40 locations or

a total of 30 days across all locations.

› For each day of downtime, the organization lost an average of $8,000

in revenue, on which it realized a 20% gross margin.

› By reducing downtime and ensuring that branches can continue

normal operations, the organization is able to reclaim $48,000 in gross

margin.

› Additionally, for each day of downtime, the organization avoids $1,500

in costs associated with lost employee productivity as well as an

additional $2,000 in costs associated with network recovery, including

overtime pay for network administrators.


organizations that deploy NSX SD-WAN:

› The amount of downtime an organization experiences with its current

WAN infrastructure.

› The extent to which downtime impacts normal business operations.

To account for these risk factors, Forrester applied a 10% risk

adjustment, yielding a three-year, risk-adjusted total PV of $342,440.

With NSX SD-WAN,

customers reduced

downtime to near zero.


WAN Management Time Savings

Each of the customers using NSX SD-WAN reported significant time

savings, owing in large part to how easy the cloud tools make it to

manage the network. The chief technology officer for the holding

company said that his team spends only one-third of the time managing

the WAN that it did prior to the NSX SD-WAN deployment. Among the

reasons the network is so much easier to manage, according to the

global network operations manager for the mining company, is the

availability of centralized controls: “With the [NSX SD-WAN by]

VeloCloud model, you don’t manage each of the individual [NSX SD-

WAN by] VeloCloud routers, you simply change policy in the centralized

controller, and the changes get pushed out to all of the sites.”


› The team that manages the WAN comprises two IT managers as well

as three network administrators.

› With the previous environment, each team member committed 10% of

their total time to the task of managing the WAN.

Reclaimed Losses From WAN Downtime: Calculation Table


F1 Average number of days of downtime per location for previous WAN configuration

0.75 0.75 0.75

F2 Number of locations 40 40 40

F3 Total days of downtime across all locations (annual)

30 30 30

F4 Estimated daily loss of revenue owing to downtime

Customer interviews

$8,000 $8,000 $8,000

F5 Gross margin on goods sold 20% 20% 20%

F6 Total reclaimed gross margin (annual)

F3*F4*F5 $48,000 $48,000 $48,000

F7 Estimated cost of lost productivity for each day of downtime

$1,500 $1,500 $1,500

F8 Total cost of lost productivity (annual)

F3*F7 $45,000 $45,000 $45,000

F9 Estimated cost of internal effort, including overtime, for network recovery for each day of downtime

$2,000 $2,000 $2,000

F10 Total cost of network recovery efforts (annual)

F3*F9 $60,000 $60,000 $60,000

Ft Reclaimed losses from WAN downtime

F6+F8+F10 $0 $153,000 $153,000 $153,000


Ftr Reclaimed losses from WAN downtime (risk-adjusted)

$0 $137,700 $137,700 $137,700


› With NSX SD-WAN, managing the WAN requires 35% less effort than

it did prior to the deployment.

The following are potential risks that may affect this benefit category:

› The complexity of existing tools organizations use for WAN

management.

› The efficiency of existing processes organizations employ to manage

the WAN environment.


yielding a three-year, risk-adjusted total PV of $34,915.

WAN Management Time Savings: Calculation Table


G1 IT manager hourly rate fully burdened US Bureau of Labor Statistics

$70 $70 $70

G2 Number of IT managers dedicated to managing the WAN

2 2 2

G3 Percentage of time dedicated to managing the previous WAN environment

10% 10% 10%

G4 Total IT manager hours dedicated to managing the previous WAN environment

2080 hours*G2*G3

416 416 416

G5 Network administrator hourly rate fully burdened

US Bureau of Labor Statistics

$45 $45 $45

G6 Number of network administrators dedicated to managing the WAN

3 3 3

G7 Percentage of time dedicated to managing the previous WAN environment

10% 10% 10%

G8 Total network administrator time dedicated to managing the previous WAN environment

2080 hours*G6*G7

624 624 624

G9 Reduction in effort to manage WAN environment with NSX SD-WAN

35% 35% 35%

Gt WAN management time savings (G1*G4)+(G5*G8)*G9

$0 $20,020 $20,020 $20,020


Gtr WAN management time savings (risk-adjusted)

$0 $18,018 $18,018 $18,018


Flexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned into business benefit for a future additional investment. This provides an organization with the "right" or the ability to engage in future initiatives but not the obligation to do so.

Unquantified Benefits

The benefit of improved security — a direct result of a

microsegmentation strategy — has not been factored into this analysis:

› Most security breaches can be attributed to internal sources; securing

east-west (internal) data flows can limit the impact of an incident. In

2017, the average cost of a security breach was $3.62 million, and

organizations faced, on average, a 28% chance of falling victim to a

recurring material data breach, according to the Ponemon Institute.3

The reduction in risk exposure that accompanies any major

improvement in internal security has not been factored into the ROI.

Flexibility

The value of flexibility is clearly unique to each customer, and the

measure of its value varies from organization to organization. There are

multiple scenarios in which a customer might choose to implement

Virtual Cloud Network and later realize additional uses and business

opportunities, including the following:

› Building with the NSX Data Center RESTful API. The NSX Data

Center RESTful API makes NSX extensible, enabling an integrated

experience across VMware products and partner solutions. IT

organizations retain flexibility and can efficiently provision complex

networks, regardless of the underlying topology and components. One

customer said that this flexibility was a key reason her organization

chose NSX.

› Supporting digital transformation. Several interviewed organizations

are aggressively pursuing digital transformations. With these initiatives,

they expect to see greater demand for cloud resources across the

enterprise. This growth has not been factored into the ROI analysis

discussed in this study. However, these customers — as well as others

pursuing digital transformation initiatives — may see accelerating

returns on an investment that allows them to provision network

resources securely and efficiently.

› Growing teams, growing skills. While efficiency is often associated

with lower headcount, interviewees stated that their IT organizations

are expanding as demand for their services continues to grow. In turn,

this demand creates new jobs and new opportunities. Requests for

new features push teams to their limits, expanding their skill sets.

› Transitioning to containers. One interviewee reported that while a

growing number of its developers are anxious to work with containers,

it needs to firm up a strategy for managing the security and networking

aspects of the container environment. NSX Data Center will make

executing on this strategy easier as it supports automated network

provisioning and security for container environments.

› Scaling up use of the public cloud. The organizations interviewed

for this study leverage both private and public cloud resources. As the

latter becomes a bigger part of the infrastructure, they expect to realize

efficiencies from being able to manage security across the private and

public cloud environments using the NSX management console.

Moving forward,

customers expect to

realize efficiencies from

being able to manage

security across the

private and public cloud

environments using the

NSX console.


› Ensuring network stability. NSX SD-WAN customers reported near-

zero downtime, helping them to reclaim revenue that would otherwise

be lost. The current analysis considers the benefits of deploying NSX

SD-WAN across a small part of an organization’s footprint; large

organizations may benefit from scale, particularly where each hour of

downtime is measured in millions of dollars.

› Simplifying network architecture. Prior to adopting NSX SD-WAN,

the mining company interviewed for this study maintained about 50

servers around the globe to ensure that business critical data was

always available at each of its 60 sites. The company couldn’t afford to

go without this data if a WAN link went down or if bandwidth was

constrained, the global network operations manager said. With the

NSX SD-WAN setup, bandwidth isn’t ever an issue, and the company

was able to create a cloud repository for its data and retire the servers.


The table above shows the total of all costs across the areas listed below, as well as present values (PVs) discounted at 10%. Over three years, the composite organization expects risk-adjusted total costs to be a PV of more than $6.4 million.

Analysis Of Costs

QUANTIFIED COST DATA AS APPLIED TO THE COMPOSITE

License And Support Costs For NSX Data Center

Licenses are only purchased for the hosts that will serve the virtual

network, and prices are tied to the number of CPU sockets on a system.

Ongoing support is offered at a percentage of total license costs.


› Each year, demand for virtual network resources increased by 10%.

› The annual cost of ongoing service and support is equal to 25% of the

initial cost of licenses.

License and support cost estimates were supplied by VMware and

confirmed by the customers. Therefore, Forrester did not apply a risk

adjustment to this cost category. The composite organization incurred

three-year license and support costs of $5,819,461 in PV.

Total Costs

REF. COST INITIAL YEAR 1 YEAR 2 YEAR 3 TOTAL PRESENT VALUE

Htr License and support costs for NSX Data Center

$3,287,650 $986,295 $1,019,171 $1,055,336 $6,348,452 $5,819,461

Itr Deployment and training costs for NSX Data Center

$295,009 $0 $9,884 $0 $304,893 $303,177

Jtr Cost of deployment and ongoing management of SD-WAN environment

$78,750 $0 $0 $0 $78,750 $78,750

Ktr Cost of SD-WAN software and hardware

$0 $92,232 $92,232 $92,232 $276,696 $229,367

Total costs (risk-adjusted) $3,661,409 $1,078,527 $1,121,287 $1,147,568 $7,008,791 $6,430,755

License And Support Costs For NSX Data Center: Calculation Table


H1 NSX Data Center license cost $2,630,120 $263,012 $289,313 $318,245

H2 NSX Data Center service and support

$657,530 $723,283 $729,858 $737,091

Ht License and support costs for NSX Data Center

H1+H2 $3,287,650 $986,295 $1,019,171 $1,055,336

Risk adjustment 0%

Htr License and support costs for NSX Data Center (risk-adjusted)

$3,287,650 $986,295 $1,019,171 $1,055,336


Implementation risk is the risk that a proposed investment may deviate from the original or expected requirements, resulting in higher costs than anticipated. The greater the uncertainty, the wider the potential range of outcomes for cost estimates.

Deployment And Training For NSX Data Center

Customers paid for professional services and training for systems

administrators, which helped to accelerate implementation and

production readiness.


› There is a one-time cost for professional services.

› The organization incurred an initial cost for VMware training; owing to

churn, and the need to train new employees, it incurred an additional

cost for VMware training in Year 2.

› Each system administrator requires 120 hours of training.

› There is an opportunity cost associated with training system

administrators, which is calculated with respect to their fully burdened

hourly rate of pay.

› It took two months for system administrators to reach full productivity

levels; during the two-month ramp-up period they worked at a 50% rate

of productivity.

The following risk factors may affect costs incurred by other

organizations:

› The existing skillsets of systems administrators, and the level of

training they require.

› The amount of churn, which results in the need to train new

employees, among systems administrators.


yielding a risk-adjusted total cost of $303,177 in PV.

Deployment And Training For NSX Data Center: Calculation Table


I1 VMware design and deployment of professional services

$200,000

I2 VMware training services program $8,250 $4,125

I3 Cost of system admin per hour $81 $81 $81 $81

I4 Cost of system admin training, initial 120 hours per admin, three admins

$19,440 $4,860

I5 Cost of system admin ramp-up period

50% productivity for two months, three admins

$40,500

It Deployment and training for NSX Data Center

I1+I2+I4+I5 $268,190 $0 $8,985 $0

Risk adjustment ↑10%

Itr Deployment and training for NSX Data Center (risk-adjusted)

$295,009 $0 $9,884 $0


Cost Of Deployment Of The SD-WAN Environment

The customers took different approaches to deploying the NSX SD-WAN

solution. One relied entirely on a third-party systems integrator. Others

completed the deployment with internal staff. Time devoted to project

planning and network architecture design varied, but all interviewees

reported actual setup times of 90 minutes or less. (Among the customers

interviewed for this study, the maximum amount of time spent on project

planning and network architecture design was 400 hours.) The global

network operations manager for the mining company also indicated that

branch setup can be completed by business personnel and without IT

staff on site, which keeps costs for bringing up new locations low.


› The organization relied on a third-party systems integrator to complete

the initial deployment.

› To deploy the SD-WAN solution across all branch locations, the

systems integrator charged fees of $75,000.

The following risk factors may affect costs incurred by other

organizations:

› The efficiency with which an organization’s staff can carry out

installation procedures.

› The dispersion of branch locations, which may impact third-party

systems integrator cost estimates.


yielding a risk-adjusted total cost of $78,750 in PV.

Cost Of Deployment Of SD-WAN Environment: Calculation Table


Jt Cost of deployment and ongoing management of SD-WAN environment

$75,000 $0 $0 $0

Risk adjustment ↑5%

Jtr Cost of deployment and ongoing management of SD-WAN environment (risk-adjusted)

$78,750 $0 $0 $0

One customer noted that

setup of the NSX SD-

WAN equipment can be

completed by business

personnel and without IT

staff on site, which keeps

branch setup costs low.


Cost Of SD-WAN Software And Hardware

The NSX SD-WAN pricing model allows customers to shift from a capex

to an opex cost structure; all of the customers interviewed for this study

preferred the latter.

The customers incur monthly charges for the rental of gateways and SD-

WAN appliances as well as access to cloud-based network management

tools. The cost estimates for the composite organization shown in the

table below assume that it chose the most common package and price

tier along with a bandwidth of 50 Mbps.

License and support cost estimates were supplied by VMware and

confirmed by the customers. Therefore, Forrester did not apply a risk

adjustment to this cost category. The composite organization incurred

three-year SD-WAN software and hardware costs of $229,367 in PV.

Cost Of SD-WAN Software And Hardware: Calculation Table


K1

Monthly per location costs for gateway and SD-WAN appliance rental and cloud portal access (rounded)

$192 $192 $192

K2 Branch locations 40 40 40

Kt Cost of SD-WAN software and hardware

K1*K2*12 $0 $92,232 $92,232 $92,232

Risk adjustment 0%

Ktr Cost of SD-WAN software and hardware (risk-adjusted)

$0 $92,232 $92,232 $92,232

The NSX SD-WAN

pricing model allows

customers to switch from

a CAPEX to an OPEX

cost structure.


The financial results calculated in the Benefits and Costs sections can be used to determine the ROI, NPV, and payback period for the composite organization's investment. Forrester assumes a yearly discount rate of 10% for this analysis.

Financial Summary

CONSOLIDATED THREE-YEAR RISK-ADJUSTED METRICS

Cash Flow Chart (Risk-Adjusted)

-$6.0 M

-$4.0 M

-$2.0 M

$2.0 M

$4.0 M

$6.0 M

$8.0 M

$10.0 M

Initial Year 1 Year 2 Year 3

Cashflows

Total costs

Total benefits

Cumulative net benefits

These risk-adjusted ROI,

NPV, and payback period

values are determined by

applying risk-adjustment

factors to the unadjusted

results in each Benefit and

Cost section.

Cash Flow Table (Risk-Adjusted)

INITIAL YEAR 1 YEAR 2 YEAR 3 TOTAL PRESENT VALUE

Total costs ($3,661,409) ($1,078,527) ($1,121,287) ($1,147,568) ($7,008,791) ($6,430,755)

Total benefits $5,569,300 $2,912,940 $3,111,046 $3,242,892 $14,836,177 $13,224,972

Net benefits $1,907,891 $1,834,413 $1,989,759 $2,095,324 $7,827,387 $6,794,217

ROI 106%

Payback period <6 months


VMware NSX: Delivering The Virtual Cloud Network

The following information is provided by VMware. Forrester has not validated any claims and does not endorse

VMware or its offerings.

The Virtual Cloud Network is a vision for the future of networking to empower customers to connect and secure

applications and data, regardless of where they run — from edge to edge. Virtual Cloud Networking is the

category of next-generation networking service technology increasingly being adopted across IT organizations to

provide a digital fabric that helps unify a hyper-distributed world.

› A Virtual Cloud Network enables organizations to embrace a virtual fabric as the software-defined architecture

for connecting everything in a distributed world, representing a significant advancement in enterprise

networking.

› Security is architected-in, not bolted on. This is key as the old rule of “perimeter security” evolves from being a

perimeter around a data center to one that is application and data-centric — and intrinsic to the entire cloud

fabric.

› All of this can only be done in software, consistent networking from end-to-end. A Virtual Cloud Network is a

ubiquitous software layer from data center to cloud to edge infrastructure that provides customers with

maximum visibility of and context for the interaction among users, applications, and data.

The VMware NSX portfolio delivers on the vision of the Virtual Cloud Network, enabling organizations to connect,

secure, and operate an edge-to-edge architecture, and delivers networking and security services to applications

and data through a common operating environment.

VMware’s approach to delivering the Virtual Cloud Network:

› Enables designing and building the next-generation policy-driven data center that connects, secures, and

automates traditional (hypervisor) as well as new microservices-based (container) applications across a range

of deployment targets (data center, cloud, branch, etc.).

› Embeds security into the platform, compartmentalizing the network through microsegmentation and

automatically detecting and responding to security threats.

› Delivers a WAN solution that provides full visibility, metrics, control, and automation of all endpoints.

› Integrates with VMware’s management, analytics, and automation platform to build a full closed loop cycle on

defining, deploying, monitoring, and taking business action.


Appendix A: Total Economic Impact

Total Economic Impact is a methodology developed by Forrester

Research that enhances a company’s technology decision-making

processes and assists vendors in communicating the value proposition

of their products and services to clients. The TEI methodology helps

companies demonstrate, justify, and realize the tangible value of IT

initiatives to both senior management and other key business

stakeholders.

Total Economic Impact Approach

Benefits represent the value delivered to the business by the

product. The TEI methodology places equal weight on the

measure of benefits and the measure of costs, allowing for a

full examination of the effect of the technology on the entire

organization.

Costs consider all expenses necessary to deliver the

proposed value, or benefits, of the product. The cost category

within TEI captures incremental costs over the existing

environment for ongoing costs associated with the solution.

Flexibility represents the strategic value that can be

obtained for some future additional investment building on

top of the initial investment already made. Having the ability

to capture that benefit has a PV that can be estimated.

Risks measure the uncertainty of benefit and cost estimates

given: 1) the likelihood that estimates will meet original

projections and 2) the likelihood that estimates will be

tracked over time. TEI risk factors are based on “triangular

distribution.”

The initial investment column contains costs incurred at “time 0” or at the

beginning of Year 1 that are not discounted. All other cash flows are discounted

using the discount rate at the end of the year. PV calculations are calculated for

each total cost and benefit estimate. NPV calculations in the summary tables are

the sum of the initial investment and the discounted cash flows in each year.

Sums and present value calculations of the Total Benefits, Total Costs, and

Cash Flow tables may not exactly add up, as some rounding may occur.

Present value (PV)

The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total NPV of cash flows.

Net present value (NPV)

The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs.

Return on investment (ROI)

A project’s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits less costs) by costs.

Discount rate

The interest rate used in cash flow analysis to take into account the time value of money. Organizations typically use discount rates between 8% and 16%.

Payback period

The breakeven point for an investment. This is the point in time at which net benefits (benefits minus costs) equal initial investment or cost.


Endnotes

1 Source: “Best Practices: Mitigating Insider Threats,” Forrester Research, Inc., November 2, 2017.

2 Source: “2017 Cost of Data Breach Security: Global Overview,” Ponemon Institute, June 13, 2017 (https://www.ponemon.org/library/2017-cost-of-data-breach-study-united-states). 3 Ibid.

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